New Forecast Reduces City's Projected Revenue Shortfall to $150 Million
The change comes largely from the shift from a "pessimistic" to "baseline" revenue forecast scenario.
By Erica C. Barnett
Seattle's August revenue forecast, which will form the basis of the 2026-2027 biennial budget, reduced the projected two-year budget shortfall from around $240 million to about $150 million, thanks largely to the Economic Revenue Forecast Council's decision to adopt a more optimistic "baseline" budget forecast this month, rather than the "pessimistic" forecast the group adopted in April.
The forecast council includes City Councilmember Dan Strauss (who chairs the four-member body), City Council President Sara Nelson, a representative from Mayor Bruce Harrell's office (at this meeting, Andrew Myerberg), and the city's finance director, Jamie Carnell. (Editor’s note: Carnell’s name was originally misspelled and has been corrected).
At the council's meeting Monday, forecast council interim director Jan Duras and other staffers explained their decision to shift to a more optimistic forecast.
"The overall situation has stabilized somewhat," Duras said, noting that major economic forecasters, such as Moody's and S&P Global, were no longer predicting a recession, which was one of the assumptions in the April forecast for Seattle. (Technically, the prediction was for a "growth recession," in which economic growth slowed but GDP did not.) At the same time, "in the last few days, there have been some developments that shifted the balance of risk more towards the downside," including a new tariff announcement from Trump and weaker than expected employment numbers, Duras said.
If the city's current projections hold (another forecast will come out in October, as the city works to finalize the next biennial budget), the upshot is that budget writers will have a total of about $90 million more to work with this year than they expected to have in April.
That still means many forms of city revenues are falling far short of previous projections. The JumpStart payroll tax, for instance, is now expected to bring in about $32 million more than anticipated over two years, but that's compared to an April forecast that reduced revenue projections for the tax by $167 million over two years.
Similarly, sales tax revenues are now projected to come in $20 million higher over two years than the forecast office projected in April, most of that in 2026, but sales tax revenues depend heavily on construction, which has plummeted since 2022. Office construction has been hit particularly hard, as existing downtown buildings remain largely vacant. And residential permits have plummeted over a similar period—a trend that could persist if the city decides to impose new restrictions, such as zoning restrictions and new tree-related mandates, on new housing development.
Tourism has also declined, especially from other countries (for some reason, Dan Strauss put an optimistic spin on this news, saying he would change the "headline" to "higher number of visitors expected in Seattle in 2025; international visitors lag"), depleting another source of sales tax revenues.
Meanwhile, revenues from smaller funding sources, like automatic speeding cameras, parking fines, and the sugary soda tax also continue to come in lower than expected.
In each case, city officials suggested the trends would reverse soon. The rollout of automated speed cameras has taken much longer than projected, so ticket revenues should start pouring in any day now. Parking fines, once so small (at $45) that Strauss said people would rather pay them than feed the meter, were just raised to around $70, which should pay off once the new fines have been in effect for a while. People may be drinking less soda now, but just wait until all those international visitors show up for the FIFA World Cup next year!
There are obvious counterarguments to all these optimistic scenarios (here's one: What if $70 parking tickets just send more people into collections?), but the forecast doesn't directly incorporate most of those assumptions. It does include a $33 million reduction in Jumpstart payroll tax revenues that will go into the general fund, a reflection of lower-than-anticipated revenues and the fact that there was enough budget "underspend" in 2024 that the transfer wasn't necessary.
Losing less money than anticipated is good news, but only in the context of how bad it could have been. Under the pessimistic scenario, the city would stand to lose an additional $87 million on top of the $240 million shortfall projected in April.
The city, in other words, will still be faced with huge potential budget cuts this year, just not quite as huge as anticipated in April. Unless the economy tanks because of future decisions by Trump, an unpredictable president whose moves to crack down on immigrants and impose huge tariffs on other countries, including US allies, have caused market volatility.
Strauss, who chairs the revenue forecast council, said he wished he could share the relative optimism of Duras and his staff, but that "today, maybe for the first time in a long time, I feel greater risk than you do," thanks to the possibility of higher-than-anticipated tariffs and other national news that could impact Seattle's economy.
Duras said choosing between more optimistic and pessimistic forecasts "essentially means taking a stance over whether the economy is going to go into a recession or not," and the likelihood of a recession is now lower than it was in April—between 40 and 50 percent—so "the more likely scenario is the one without a recession."